2.1.1 Monopoly: Definition

Perfect markets achieve efficiency: maximizing total surplus generated. But real markets are imperfect. In this course we will explore a set of market imperfections to understand why they fail and to explore possible remedies including as antitrust policy, regulation, government intervention. Examples are taken from everyday life, from goods and services that we all purchase and use. We will apply the theory to current events and policy debates through weekly exercises. These will empower you to be an educated, critical thinker who can understand, analyze and evaluate market outcomes.

审阅

DV

Love how the videos were brief, but informative. Very helpful class and exams weren't overly complicated. In the end, I felt as though I retained much of the knowledge.

LE

Oct 21, 2016

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Another fine course from Professor Stein. I particularly appreciated the final set of lectures, but all were well presented, understandable, and relevant.

从本节课中

Monopoly

A monopoly is a case where there is only one firm in the market. We will define and model this case and explain why market power is good for the firm, bad for consumers. We will also show that society as a whole suffers from the lack of competition.

教学方

Rebecca Stein

Senior Lecturer

脚本

[MUSIC] Let's start by defining a monopoly. A monopolistic market is a market where we have one firm where the product is differentiated and there are some barriers to entry. A good example of this is might be a pharmaceutical firm that is producing some sort of a chemotherapy drug. There's only one firm that's producing this specific drug. This specific drug is different from other drugs in the market and is a legal barrier to entry. Other firms that want to produce this drug are not allowed to because this particular firm has a patent on the drug. This is very different from the perfectly competitive market that we used as a benchmark. In that market, we had many firms, they all produced the same good and firms were free to enter and exit. A result of the monopoly structure is that the firm is a price setter. They do not have to respond to the price in the market, they get to set the price. This does not mean they can set any price they want, demand is downward sloping. A higher price will encourage consumers to consider alternatives to this treatment, and a lower price might encourage people in poor countries to stop purchasing this treatment. So there is a downward sloping demand curve but the firm, by setting the price, chooses where along the demand curve they want to be.